Vivakor, Inc 8-K/A, filed Oct 17, 2022
Vivakor, Inc. (VIVK)
About this 8-K/A
Vivakor, Inc filed this 8-K/A on October 17, 2022, reporting on events of August 1, 2022.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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Explanatory Note
On August 5, 2022, Vivakor, Inc. (the “Company”), a Nevada corporation, filed a Current Report on Form 8-K (the “Initial Report”) to report that the Company, Jorgan Development, LLC, a Louisiana limited liability company (“Jorgan”) and JBAH Holdings, LLC, a Texas limited liability company ("JBAH" and, together with Jorgan, the "Sellers"), as the equity holders of Silver Fuels Delhi, LLC, a Louisiana limited liability company (“SFD”) and White Claw Colorado City, LLC, a Texas limited liability company (“WCCC”) closed on the previously disclosed Membership Interest Purchase Agreement among them dated June 15, 2022 (the “MIPA”). In accordance with the terms of the MIPA, the Company acquired all of the issued and outstanding membership interests in each of SFD and WCCC (the “Membership Interests”), making SFD and WCCC wholly owned subsidiaries of the Company.
This Current Report on Form 8-K/A (this “Amendment”) amends and supplements the Initial Report to provide financial statements of Silver Fuels Delhi, LLC and White Claw Colorado City, LLC, and the pro forma financial statements of the Company required by Item 9.01 of Form 8-K. No other modifications to the Initial Report are being made by this Amendment. This Amendment should be read in connection with the Initial Report, which provides a more complete description of the MIPA and transactions contemplated thereby.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of SFD and WCCC
The audited financial statements of SFD as of and for the years ended December 31, 2021 and 2020, and the audited financial statements of WCCC as of and for the period April 24, 2021 (Inception) to December 31, 2021, together with the related notes to the financial statements, are included as Exhibits 99.1 and 99.2 to this Current Report.
The unaudited financial statements of SFD for the six months ended June 30, 2022 and 2021, and the unaudited financial statements of WCCC as of and for the six months ended June 30, 2022, and for the period April 24, 2021 (Inception) to June 30, 2021, together with the related unaudited notes to the financial statements, are included as Exhibits 99.3 and 99.4 to this Current Report and are incorporated herein by reference.
(b) Pro Forma Financial Information.
The unaudited pro forma consolidated financial statements of Company for the six months ended June 30, 2022 and for the year ended December 31, 2021, are included as Exhibit 99.5 to this Current Report and are incorporated herein by reference.
The pro forma financial information included in this Amendment No.1 has been presented for informational purposes only and is not necessarily indicative of the consolidated financial position or results of operations that would have been realized had the acquisition occurred as of the dates indicated, nor is it meant to be indicative of any anticipated consolidated financial position or future results of operations that the Company will experience after the acquisition.
(d) Exhibits
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| VIVAKOR, INC. | ||
Dated: October 17, 2022 |
By: | /s/ Tyler Nelson |
| Name: Tyler Nelson | ||
| Title: Chief Financial Officer | ||
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Exhibit 99.1
Silver Fuels Delhi, LLC
Financial Statements
as of and for the years ended
December 31, 2021 and 2020
Silver Fuels Delhi, LLC
Table of Contents
| Independent Auditors’ Report | 1-2 |
| Balance Sheets as of December 31, 2021 and 2020 | 3 |
| Statements of Operations for the years ended December 31, 2021 and 2020 | 4 |
| Statements of Members’ Equity (Deficit) for the years ended December 31, 2021 and 2020 | 5 |
| Statementsof Cash Flows for the years ended December 31, 2021 and 2020 | 6 |
| Notes to the Financial Statements | 7-11 |
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INDEPENDENT AUDITORS’ REPORT
Management Silver Fuel Delhi, LLC Dallas, Texas
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Opinion
We have audited the accompanying financial statements of Silver Fuels Delhi, LLC, which comprise the balance sheets as of December 31, 2021 and 2020 and the related statements of operations, members’ equity (deficit), and cash flows for the years then ended, and the related notes to the financial statements.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Silver Fuels Delhi, LLC, as of December 31, 2021 and 2020 and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Silver Fuels Delhi, LLC and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Related Party Transactions
As discussed in Notes 3 and 5 to the accompanying financial statements, all purchases are from entities in which the Company’s manager also controls. Our opinion is not modified with respect to that matter.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America and for the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
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In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Silver Fuels Delhi, LLC’s ability to continue as a going concern within one year after the date that the financial statements are available to be issued.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements, including omissions, are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with generally accepted auditing standards, we:
| · | Exercise professional judgment and maintain professional skepticism throughout the audit. | |
| · | Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. | |
| · | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Silver Fuels Delhi, LLC’s internal control. Accordingly, no such opinion is expressed. | |
| · | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. | |
| · | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Silver Fuels Delhi, LLC’s ability to continue as a going concern for a reasonable period of time |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
Shreveport, Louisiana
April 11, 2022
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Silver Fuels Delhi, LLC
Balance Sheets
as of December 31, 2021 and 2020
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 83,261 | $ | 106,712 | ||||
| Accounts receivable, Note 2 | 2,993,706 | 1,571,049 | ||||||
| Total current assets | 3,076,967 | 1,677,761 | ||||||
| Property and equipment, net, Notes 2 and 4 | 2,483,697 | 2,501,223 | ||||||
Other assets | ||||||||
| Reserve account, Note 6 | ||||||||
| Due from related party, Note 5 | 67,303 | 2,683,306 | ||||||
| Inventory, Note 2 | 99,902 | 42,744 | ||||||
| Security deposits | 41,012 | 41,012 | ||||||
| Total other assets | 577,326 | 2,983,062 | ||||||
Total assets | $ | 6,137,990 | $ | 7,162,046 | ||||
| Liabilities and members' equity (deficit) | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 106,684 | $ | 94,888 | ||||
| Due to related party, Note 5 | 2,229,773 | 6,634,772 | ||||||
| Current portion of lease obligations, Note 6 | 232,572 | 201,965 | ||||||
| Total current liabilities | 2,569,029 | 6,931,625 | ||||||
| Maxus lease obligations - less current portion, Note 6 | 1,696,344 | 1,894,760 | ||||||
| Members' equity (deficit) | 1,872,617 | (1,664,339 | ) | |||||
Total liabilities and members' equity (deficit) | $ | 6,137,990 | $ | 7,162,046 | ||||
See independent auditors' report and accompanying notes to the financial statements.
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Silver Fuels Delhi, LLC
Statements of Operations
for the years ended December 31, 2021 and 2020
| 2021 | 2020 | |||||||
| Sales | $ | 33,000,380 | $ | 10,545,679 | ||||
| Cost of sales | 30,598,276 | 9,843,754 | ||||||
| Gross profit | 2,402,104 | 701,925 | ||||||
| Operating expenses | ||||||||
| Bank charges | 120 | 263 | ||||||
| Contract labor | 4,320 | 127,899 | ||||||
| Depreciation | 297,323 | 286,206 | ||||||
| Electrical services | 24,467 | 0 | ||||||
| Environmental services | 9,100 | 250 | ||||||
| Equipment rental | 6,487 | 3,524 | ||||||
| Fuel | 4,635 | 0 | ||||||
| Gathering and transportation | 56,889 | 29,280 | ||||||
| IT services | 2,402 | 0 | ||||||
| Legal and accounting | 725 | 725 | ||||||
| License and permits | 355 | 0 | ||||||
| Maintenance | 30,688 | 0 | ||||||
| Meter proving | 12,856 | 11,646 | ||||||
| Office supplies | 313 | 429 | ||||||
| Payroll expense | 166,032 | 14,284 | ||||||
| Postage and delivery | 202 | 0 | ||||||
| Propane | 751 | 1,590 | ||||||
| Property tax | 19,950 | 14,469 | ||||||
| Pump | 0 | 5,745 | ||||||
| Rent | 2,297 | 0 | ||||||
| Safety | 0 | 503 | ||||||
| Sales tax | 50,947 | 48,867 | ||||||
| Samples | 3,286 | 0 | ||||||
| Telephone and internet | 2,423 | 0 | ||||||
| Tools | 7,362 | 642 | ||||||
| Travel | 1,626 | 0 | ||||||
| Utilities | 11,159 | 12,180 | ||||||
| Total operating expenses | 716,715 | 558,502 | ||||||
| Income from operations | 1,685,389 | 143,423 | ||||||
| Other income (expense) | ||||||||
| Other income | 934 | 0 | ||||||
| Interest expense | (324,336 | ) | (260,751 | ) | ||||
| Total other expense | (323,402 | ) | (260,751 | ) | ||||
| Net income (loss) | $ | 1,361,987 | $ | (117,328 | ) | |||
See independent auditors' report and accompanying notes to the financial statements.
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Silver Fuels Delhi, LLC
Statements of Members' Equity (Deficit)
for the years ended December 31, 2021 and 2020
| Balance, as of December 31, 2019 | $ | 4,676,230 | ||
| Members' contributions | 114,759 | |||
| Members' distributions | (6,338,000 | ) | ||
| Net loss | (117,328 | ) | ||
Balance, as of December 31, 2020 | (1,664,339 | ) | ||
| Members' contributions | 16,966,167 | |||
| Members' distributions | (14,791,198 | ) | ||
| Net income | 1,361,987 | |||
Balance, as of December 31, 2021 | $ | 1,872,617 |
See independent auditors' report and accompanying notes to the financial statements.
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Silver Fuels Delhi, LLC
Statements of Cash Flows
for the years ended December 31, 2021 and 2020
| 2021 | 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | 1,361,987 | $ | (117,328 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by | ||||||||
| (used in) operating activities: | ||||||||
| Depreciation | 297,323 | 286,206 | ||||||
| Amortization of financing fees | 34,156 | 25,617 | ||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable | (1,422,657 | ) | (328,207 | ) | ||||
| Prepaid expenses | ||||||||
| Reserve account | (153,109 | ) | (216,000 | ) | ||||
| Inventory | (57,158 | ) | 65,567 | |||||
| Security deposits | 0 | (14,012 | ) | |||||
| Increase (decrease) in: | ||||||||
| Accounts payable | 264,459 | (8,119 | ) | |||||
| Net cash provided by (used in) operating activities | 325,001 | (306,276 | ) | |||||
| Cash flows from investing activities | ||||||||
Purchases of property and equipment | (279,797 | ) | 0 | |||||
| Net cash used in investing activities | (279,797 | ) | 0 | |||||
| Cash flows from financing activities | ||||||||
| Net increase in due to affiliate | 2,791,811 | 3,951,466 | ||||||
| Proceeds from financing arrangements | 0 | 2,375,861 | ||||||
| Repayments on financing arrangements | (201,965 | ) | (133,974 | ) | ||||
| Financing fees incurred | 0 | (160,779 | ) | |||||
| Members' contributions | 506,499 | 114,759 | ||||||
| Members' distributions | (3,165,000 | ) | (6,338,000 | ) | ||||
| Net cash provided by (used in) investing activities | (68,655 | ) | (190,667 | ) | ||||
Net decrease in cash and cash equivalents | (23,451 | ) | (496,943 | ) | ||||
| Beginning cash and cash equivalents | 106,712 | 603,655 | ||||||
Ending cash and cash equivalents | $ | 83,261 | $ | 106,712 | ||||
Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | 290,180 | $ | 235,134 | ||||
Supplementary non-cash investing and financing activities | ||||||||
| Assignment of members' payables to contributions | $ | 16,459,668 | $ | 0 | ||||
| Assignment of members' payables to distributions | $ | 11,626,198 | $ | 0 | ||||
See independent auditors' report and accompanying notes to the financial statements.
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Silver Fuels Delhi, LLC
Notes to the Financial Statements
| (1) | Nature of Business |
Silver Fuels Delhi, LLC, (the “Company”), is a privately held limited liability company and operates a crude oil blending facility in Delhi, Louisiana. The Company was organized in January, 2018.
| (2) | Summary of Significant Accounting Policies |
Basis of accounting - The financial statements of the Company have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
Basis of presentation and use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents - For purposes of reporting cash flows, cash and cash equivalents includes all cash on hand and cash on deposit with maturities of less than three months.
Trade accounts receivable – Trade accounts receivable primarily relates to sales to customers for crude oil. Differences between the amounts due from customers and the amounts management expects to collect are reported in the results of operations of the year in which those differences are determined. An offsetting entry to a valuation allowance for account balances that are outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to an accounts receivable. As of December 31, 2021 and 2020, the Company had no allowance for doubtful accounts. Trade accounts receivable are zero interest bearing.
Trade accounts receivable in an amount up to $1,213,522 is used as collateral for a loan in Ballengee Holdings, LLC, a related party.
Inventory – Inventory is stated at cost or net realizable value on the first-in, first-out basis.
Property and equipment – Property and equipment is stated at cost. Depreciation is computed by the straight-line method over the assets estimated useful life.
Routine maintenance and repairs are charged to operating expense, while costs of improvements and replacements are capitalized. When an asset is retired or sold, its cost and related accumulated depreciation are removed from the accounts, and the difference between the net book value of the asset and proceeds from disposition is recognized as a gain or loss in the statement of operations.
| (2) | Summary of Significant Accounting Policies – (continued) |
Asset retirement obligations – Under ASC 410-20, Asset Retirement and Environmental Obligations – Asset Retirement Obligations, which relates to accounting requirements for costs associated with legal obligations to retire tangible, long-lived assets, the Company records an Asset Retirement Obligation (“ARO”) at fair value in the period in which it is incurred by increasing the carrying amount of the related long-lived asset. In each subsequent period, liability is accreted over time towards the ultimate obligation amount and the capitalized costs are depreciated over the useful life of the related asset. The Company did not identify any significant or material cost after review; thus, no ARO obligation is recorded for the years ended December 31, 2021 and 2020.
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Silver Fuels Delhi, LLC
Notes to the Financial Statements
Impairment of long-lived assets - Long-lived assets such as property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management reviews all material assets annually for possible impairment. If such assets are considered to be impaired, the impairment recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. No impairment was considered necessary during the years ended December 31, 2021 or 2020.
Revenue recognition – Revenues from the sale of crude oil are recognized at the time title to the product sold transfers to the purchaser, which occurs upon delivery of the product to the purchaser or to the purchaser’s designated delivery points, at contractual prices.
The Company adopted Accounting Standards Update (ASU) No 2014-09, Revenue from Contracts with Customers (Topic 606) during the year ended December 31, 2020. The ASU provides a single principles-based revenue recognition model with a five-step analysis of transactions to determine when and how revenue is recognized. The adoption of the ASU did not have an impact on the Company’s results of operations.
Financing fees – Financing fees represent costs incurred in relation to the Maxus lease obligations (see Note 6). Such costs have been deferred and are being amortized on a straight-line basis over the five-year terms of the related obligations. The Maxus lease obligation, net of current portion is recorded on the accompanying balance sheets net of unamortized debt issuance costs. A total of $34,156 and $25,617 have been amortized to interest expense, respectively, during the years ended December 31, 2021 and 2020.
| (2) | Summary of Significant Accounting Policies – (continued) |
Income taxes - The Company is a limited liability company (“LLC”) that is treated as a partnership for federal and state income tax purposes. As such, the Company does not pay income taxes, as any income or loss and credits are included in the tax returns of the members. Accordingly, no provision has been made for income taxes in the financial statements.
Under the provisions of FASB ASC 740-10, the Company records a liability for uncertain tax positions when probable that a loss has been incurred and the amount can be reasonably estimated. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings.
Subsequent events – Management of the Company has evaluated subsequent events, for recognition and disclosure, through April 11, 2022, the date the financial statements were available to be issued.
| (3) | Major Customers, Supplier and Concentration of Credit Risk |
The Company had one (1) customer whose revenue individually represented 94% of the Company’s total revenue for the year ended December 31, 2021 and 100% of the Company’s total revenue for the year ended December 31, 2020. This customer also represents 100% of the accounts receivable as of December 31, 2021 and 2020.
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Silver Fuels Delhi, LLC
Notes to the Financial Statements
The Company had two (2) major suppliers (both related parties – see Note 5) that accounted for 100% of crude oil purchases for the year ended December 31, 2021 and 2020.
Additionally, the Company and its major customers and suppliers operate in the crude oil industry. The industry concentration has the potential to impact the Company’s overall exposure to credit risk in that its customers and suppliers may be similarly affected by changes in economic, industry, or other conditions. There is risk that the Company would not be able to identify and access replacement markets at comparable margins.
The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to certain limits. The Company has not experienced any losses in such accounts.
| (4) | Property and Equipment |
The following is a summary of property and equipment as of December 31, 2021 and 2020:
| 2021 | 2020 | |||||||
| Land | $ | 140,000 | $ | 140,000 | ||||
| Delhi crude facility | 2,111,232 | 2,111,232 | ||||||
| Station improvements | 750,852 | 750,852 | ||||||
| Tank farm | 266,797 | 0 | ||||||
| Other equipment | 13,000 | 0 | ||||||
| Sub-total | $ | 3,281,881 | $ | 3,002,084 | ||||
| Less: accumulated depreciation | 798,184 | 500,861 | ||||||
| Total | $ | 2,483,697 | $ | 2,250,223 |
Depreciation expense related to property and equipment was $297,323 and $286,206, respectively, for the years ended December 31, 2021 and 2020.
| (5) | Related Party Transactions |
During the years ended December 31, 2021 and 2020, the Company entered into transactions to purchase crude oil with Bacchus Capital, LLC (“Bacchus”) and White Claw Crude, LLC (“WCC”). Bacchus and WCC are LLC’s controlled by James H. Ballengee (“Ballengee”), the manager of Silver Fuels Delhi, LLC.
During the year ended December 31, 2021 the Company purchased approximately $9,572,233 and $21,026,043 in crude oil from Bacchus and WCC, respectively. During the year ended December 31, 2020 the Company purchased approximately $6,634,772 and $3,172,694 in crude oil from Bacchus and WCC, respectively.
As of December 31, 2021, the Company had balances due to Bacchus and WCC of $0 and $2,229,773, respectively. As of December 31, 2020, the Company had balances due to Bacchus and WCC of $6,634,772 and $0, respectively. Such amounts are included in current liabilities as due to related party in the accompanying balance sheets.
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Silver Fuels Delhi, LLC
Notes to the Financial Statements
During the year ended December 31, 2020, the Company made short-term operating advances to WCC. The advances had no stated terms. As of December 31, 2020, the Company had a balance due under these advances totaling $2,683,306. Such amount is included in due from related party in the accompanying balance sheets.
During the year ended December 31, 2021, the Company entered into a crude petroleum supply (“CPS”) agreement with WCC. The CPS requires that the Company buy and WCC sell greater than or equal to 1,000 barrels per day. Under the terms of the CPS, WCC is responsible for any loss allowance related to the quantities sold. During the year December 31, 2021, WCC was responsible for $2,018,494 in loss allowances. This amount is included in sales for the year ended December 31, 2021 in the accompanying statements of operations.
| (5) | Related Party Transactions – ( continued) |
During the years ended December 31, 2021 and 2020, the Company reimbursed Ballengee Holdings, LLC, (“BH”) for payroll costs related to BH employees performing work for SFD. BH is an LLC controlled by Ballengee. BH bills the Company periodically for payroll costs incurred for work performed for the Company. The total amount billed for the years ended December 31, 2021 and 2020, was approximately $166,032 and $14,284, respectively, and is included in payroll expense in the accompanying statements of operations. As of December 31, 2021 and 2020, the Company had a balance due of $82,852 and $14,284 to BH and such amounts are included in accounts payable in the accompanying balance sheets.
During the year ended December 31, 2021, the Company made short-term operating advances to Silver Fuels, NGL Processing, LLC, (“SFNP”) in the amount of $67,303. The advances have no stated terms. SFNP is an LLC controlled by James Ballengee. As of December 31, 2021, the Company had a balance due from SFNP for $67,303 that is included in due from related party on the accompanying balance sheet.
The Company is also a guarantor on a lease obligation of White Claw Colorado City, LLC, a related party controlled by Ballengee.
| (6) | Financing Arrangements |
On March 17, 2020, the Company entered into two sale and leaseback transactions with Maxus Capital Group, LLC (“Maxus”).
The first transaction involved the Company assigning twelve 400-barrel steel storage tanks, two truck offloading transfer meters and two pipeline transfer meters located in Richland Parish, Louisiana to Maxus for consideration of $1,025,000 and subsequently entering into an agreement to lease the assets back from Maxus for 60 monthly payments of $22,100. At the end of the lease term there is an option purchase the assets back from Maxus at a purchase price of $1.
The second transaction involved the Company assigning all remaining property at the blending facility in Richland Parish, Louisiana with the exception of land, to Maxus for consideration of $1,350,861 and subsequently entering into an agreement to lease the assets back from Maxus for 60 monthly payments of $18,912. At the end of the lease term, there is an option to purchase the assets back from Maxus at a purchase price of $877,519.
The 9.39 acres of land located Richland Parish, Louisiana, which contains the blending facility, is being used as collateral for both lease obligations.
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Silver Fuels Delhi, LLC
Notes to the Financial Statements
| (6) | Financing Arrangements – (continued) |
The Company is required to make minimum cash reserve payments of at least $24,000 ($8,945 and $15,055 for the first and second lease, respectively) each month in addition to the base lease payments. The cash reserve payments are to be used in the event of a default by the Company. At the end of the term Maxus will return the balance of any cash reserve payments. As of December 31, 2021 and 2020, the balances of the cash reserve payments were $369,109 and $216,000, respectively.
The terms of the lease agreements, including the Company’s option to purchase the leased assets from Maxus at the end of the lease terms, preclude the Company from using sale and leaseback accounting treatment in accordance with FASB ASC 842-40. As such, the transactions are being accounted for as financing arrangements, whereby the Company does not record a sale or derecognize the assets being leased. The Company continues to record depreciation expense on the leased assets and has recorded financial liabilities due to Maxus (shown as Maxus lease obligations in accompanying balance sheets). The Company is using imputed interest rates of 17.73% and 10.36% for the first and second lease obligations, respectively, which results in the carrying value of the financial liabilities equating the estimated book value of the leased assets at the end of the lease terms and the dates at which the Company may exercise its buy-back options.
Future minimum lease payments for each of the next four years under the Maxus lease obligations and a reconciliation of undiscounted cash flows to the balance of the December 31, 2021 on the accompanying balance sheet are as follows:
| 2022 | 492,145 | |||
| 2023 | 492,145 | |||
| 2024 | 492,145 | |||
| 2025 | 123,036 | |||
| Total minimum lease payments | 1,599,471 | |||
| Less: amount representing interest | (704,432 | ) | ||
| Present value of net minimum payments | 895,039 | |||
| Add: carrying value of lease obligation at end of lease term | 1,144,883 | |||
| Total lease obligation | 2,039,922 | |||
| Less: unamortized financing fees | (111,006 | ) | ||
| Total lease obligation, less unamortized financing fees | 1,928,916 | |||
| Less: current portion | (232,572 | ) | ||
| Total lease obligation, less current portion | $ | 1,696,344 |
| (7) | Legal Matters |
The Company is subject to various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company.
| (8) | Risks and Uncertainties |
In response to the COVID-19 pandemic, many state and local governments instituted restrictions that substantially limited the operations of non-essential businesses and the activities of individuals. While some of these restrictions have been eased, there is still significant uncertainty around the extent and duration of those still in place and the possibility for restrictions to be increased again in the future. The extent to which the pandemic will impact the Company’s financial results in the coming periods depends on future developments, including where there are additional outbreaks of COVID-19 and the actions taken to contain or address the virus. The Company cannot reasonably estimate the overall length or severity of this pandemic, which if prolonged for a longer duration, could potentially have a material impact to the financial statements.
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Exhibit 99.2
White Claw Colorado City, LLC
Financial Statements
as of December 31, 2021 and for the
period April 24, 2021 (Inception) to
December 31, 2021
White Claw Colorado City, LLC
Table of Contents
| Independent Auditors’ Report | 1-2 |
| Balance Sheet as of December 31, 2021 | 3 |
| Statements of Income for the period April 24, 2021 (Inception) to December 31, 2021 | 4 |
| Statements of Members’ Equity for the period April 24, 2021 (Inception) to December 31, 2021 | 5 |
| Statements of Cash Flows for the period April 24, 2021 (Inception) to December 31, 2021 | 6 |
| Notes to the Financial Statements | 7-10 |
| i |
INDEPENDENT AUDITORS’ REPORT
Management White Claw Colorado City, LLC Dallas, Texas
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|
Opinion
We have audited the accompanying financial statements of White Claw Colorado City, LLC, which comprise the balance sheet as of December 31, 2021 and the related statements of income, members’ equity, and cash flows for the period April 24, 2021 (Inception) to December 31, 2021, and the related notes to the financial statements.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of White Claw Colorado City, LLC, as of December 31, 2021 and the results of its operations and its cash flows for the period April 24, (Inception) to December 31, 2021 in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of White Claw Colorado City, LLC and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Related Party Transactions
As discussed in Notes 3 and 4 to the accompanying financial statements, all revenues are derived from entity in which the Company’s manager also controls. Our opinion is not modified with respect to that matter.
| 1 |
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America and for the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about White Claw Colorado City,
LLC’s ability to continue as a going concern within one year after the date that the financial statements are available to be issued.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements, including omissions, are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with generally accepted auditing standards, we:
| · | Exercise professional judgment and maintain professional skepticism throughout the audit. | |
| · | Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. | |
| · | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of White Claw Colorado City, LLC’s internal control. Accordingly, no such opinion is expressed. | |
| · | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. | |
| · | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about White Claw Colorado City, LLC’s ability to continue as a going concern for a reasonable period of time |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
Shreveport, Louisiana
April 11, 2022
| 2 |
White Claw Colorado City, LLC
Balance Sheet
as of December 31, 2022
| Assets | ||||
| Current assets | ||||
| Cash | $ | 1,350,890 | ||
| Accounts receivable, Note 2 | 272,435 | |||
| Total current assets | 1,623,325 | |||
| Property and equipment, net, Note 2 | ||||
| China Grove Station | 2,541,518 | |||
| Less: accumulated depreciation | (166,667 | ) | ||
| Total property and equipment, net | 2,374,851 | |||
| Other assets | ||||
| Deposits | 72,313 | |||
| Total other assets | 72,313 | |||
| Total assets | 4,070,489 | |||
| Liabilities and members' equity | ||||
| Current liabilities | ||||
| Trade payables | 92,012 | |||
| Current portion of lease obligation, Note 5 | 175,760 | |||
| Total current liabilities | 267,772 | |||
| Maxus lease obligation - less current portion, Note 5 | 2,202,527 | |||
| Members' equity | 1,600,190 | |||
Total liabilities and member's equity | $ | 4,070,489 | ||
See independent auditors' report and accompanying notes to the financial statements.
| 3 |
White Claw Colorado City, LLC
Statement of Income
for the period April 24, 2021 (Inception) to December 31, 2021
| Revenues | ||||
| Storage lease income | $ | 180,000 | ||
| Reimbursed expenses - related party | 92,435 | |||
| Total revenues | 272,435 | |||
Operating expenses | ||||
| Reimbursed expenses - related party | 92,435 | |||
| Bank service charges | 60 | |||
| Depreciation | 166,667 | |||
| Professional fees | 300 | |||
| Total operating expenses | 259,462 | |||
| Net Income | $ | 12,973 | ||
See independent auditors' report and accompanying notes to the financial statements.
| 4 |
White Claw Colorado City, LLC
Statement of Members’ Equity
for the period April 24, 2021 (Inception) to December 31, 2021
| Balance, April 24, 2021 | $ | 0 | ||
| Net income | 12,973 | |||
| Members' contributions | 2,737,217 | |||
| Members' distributions | (1,150,000 | ) | ||
Balance, December 31, 2021 | $ | 1,600,190 |
See independent auditors' report and accompanying notes to the financial statements.
| 5 |
White Claw Colorado City, LLC
Statement of Cash Flows
for the period April 24, 2021 (Inception) to December 31, 2021
| Cash flow from operating activities | ||||
| Net income | $ | 12,973 | ||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||
| Depreciation | 166,667 | |||
| (Increase) decrease in: | ||||
| Accounts receivable | (272,435 | ) | ||
| Deposits | (72,313 | ) | ||
| Increase (decrease) in: Accounts payable | 92,012 | |||
| Net cash used in operating activities | (73,096 | ) | ||
| Cash flows from financing activities | ||||
| Proceeds from financing arrangements | 2,500,000 | |||
| Repayments on financing arrangements | (39,313 | ) | ||
| Financing fees incurred | (82,400 | ) | ||
| Members' contributions | 195,699 | |||
| Members' distributions | (1,150,000 | ) | ||
| Net cash provided by investing activities | 1,423,986 | |||
| Net increase in cash and cash equivalents | 1,350,890 | |||
| Beginning cash and cash equivalents | 0 | |||
| Ending cash and cash equivalents | 1,350,890 | |||
| Supplementary non-cash investing and financing activities | ||||
| Member contribution of property and equipment | $ | 2,541,518 | ||
See independent auditors' report and accompanying notes to the financial statements.
| 6 |
White Claw Colorado City, LLC
Notes to the Financial Statements
| (1) | Nature of Business |
White Claw Colorado City, LLC (the “Company”) is a privately held limited liability company and is primarily engaged in the business of crude oil storage. The Company operates a crude oil, natural gas liquids, condensate, and liquid hydrocarbon receipt, throughput, processing, blending, and delivery terminal, commonly known as the China Grove Station (the “China Grove Station”), located in Colorado City, Texas.
| (2) | Summary of Significant Accounting Policies |
Basis of accounting – The financial statements of the Company have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
Basis of presentation and use of estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents - Cash and cash equivalents includes all cash on hand and cash on deposit with maturities of less than three months.
Accounts receivable – All of the Company’s accounts receivable are from one customer, White Claw Crude, LLC (“WCC”), a related party (Note 4). All accounts receivable are generated from monthly lease payments due for the storage of crude oil and monthly reimbursable operating expenses, in accordance with the Oil Storage Agreement (“OSA”). Accounts receivable are recorded at net realizable value and therefore, no reserve has been recorded as management considers such receivables to be fully collectible. Upon management’s determination of uncollectability, such amounts would be written off directly through bad debt expense.
Property and equipment – Property and equipment is stated at cost. Depreciation is computed by the straight-line method over the useful lives of the assets. Depreciation expense related to property and equipment was $166,667 for the period from April 24, 2021 (Inception) to December 31, 2021.
Routine maintenance and repairs are charged to operating expense, while costs of improvements and replacements are capitalized. When an asset is retired or sold, its cost and related accumulated depreciation are removed from the accounts, and the difference between the net book value of the asset and proceeds from disposition is recognized as a gain or loss in the statement of income.
| (2) | Summary of Significant Accounting Policies – (continued) |
Asset retirement obligations – Under ASC 410-20, Asset Retirement and Environmental Obligations – Asset Retirement Obligations, which relates to accounting requirements for costs associated with legal obligations to retire tangible, long-lived assets, the Company records an Asset Retirement Obligation (“ARO”) at fair value in the period in which it is incurred by increasing the carrying amount of the related long-lived asset. In each subsequent period, liability is accreted over time towards the ultimate obligation amount and the capitalized costs are depreciated over the useful life of the related asset. The Company did not identify any significant or material cost after review; thus, no ARO obligation is recorded for the period April 24, 2021 to December 31, 2021.
| 7 |
White Claw Colorado City, LLC
Notes to the Financial Statements
Impairment of long-lived assets - Long-lived assets such as property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management reviews all material assets annually for possible impairment. If such assets are considered to be impaired, the impairment recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. No impairment was considered necessary during the period April 24, 2021 (Inception) to December 31, 2021.
Revenue recognition – All of the Company’s revenues are generated from the rental of oil storage space at the China Grove Station and the reimbursement of operating expenses in accordance with the OSA.
The Company recognizes oil storage lease income monthly on a straight-line basis over the life of the lease. Reimbursed expense income is recognized as the related expenses are incurred.
Financing fees – Financing fees represent costs incurred in relation to the Maxus lease obligation (see Note 5). Such costs have been deferred and are being amortized on a straight-line basis over the five-year term of the related obligation. The Maxus lease obligation, net of current portion is recorded on the accompanying balance sheet net of unamortized debt issuance costs. No debt issuance costs have been amortized to interest expense during the period April 24, 2021 to December 31, 2021 as they were incurred at period-end.
Income taxes – The Company is treated as a partnership for federal and state income tax purposes. As such, the Company does not pay income taxes, as any income or loss and credits are included in the tax returns of the members. Accordingly, no provision has been made for income taxes in the consolidated financial statements.
Under the provisions of FASB ASC 740-10, the Company records a liability for uncertain tax positions when probable that a loss has been incurred and the amount can be reasonably estimated. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings.
| (2) | Summary of Significant Accounting Policies – (continued) |
Subsequent events – Management of the Company has evaluated subsequent events, for recognition and disclosure, through April 11, 2022, the date the financial statements were available to be issued. See Note 4.
| (3) | Major Customers and Concentration of Credit Risk |
The Company’s only customer is WCC. WCC accounts for the entire balance of accounts receivable as of December 31, 2021 and for all the Company’s revenues for the period April 24, 2021 (Inception) to December 31, 2021. Additionally, the Company and WCC operate in the crude oil industry. The industry concentration has the potential to impact the Company’s overall exposure to credit risk in that its customer may be similarly affected by changes in economic, industry or other conditions. There is risk that the Company would not be able to identify and access replacement markets at comparable margins.
The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to certain limits. The Company has not experienced any losses in such accounts.
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White Claw Colorado City, LLC
Notes to the Financial Statements
| (4) | Related-Party Transactions |
As disclosed in Notes 2 and 3, the Company’s only customer is WCC. The Company shares common ownership with WCC and is controlled by and shares the same Manager, James H. Ballengee (“Ballengee”).
Originally effective January 1, 2021, a later amended with an effective date of October 1, 2021, the Company and WCC entered into an OSA. The OSA provides that WCC store crude oil, condensate, natural gas liquids, and constituent liquid hydrocarbons (“Product”) at the China Grove Station until expiration of the lease on December 31, 2031.
The OSA provides that WCC make monthly lease payments to the Company an amount equal to the greater of (a) the Minimum Volume Commitment (“MVC”), which is 120,000 barrels of Product multiplied time fifty cents ($0.50) per barrel (the “Rate”), or $60,000 or (b) the average daily volume of Product stored at the China Grove Station multiplied by the applicable Rate. Additionally, the OSA requires that WCC reimburse the Company for certain operating expenses.
The OSA also calls for a $0.25 per barrel increase in the Rate upon occurrence of the China Grove Station either being directly or indirectly physical connected by bi-directional pipeline to the facilities of Medallion Midstream, LLC, or its successors, at or near Colorado City, Texas (the “Connection Event”). As of the date the financial statements were available to be issued, the Connection Event has not occurred, and it is not currently known when or if it will occur.
| (4) | Related-Party Transactions – (continued) |
Subsequent to December 31, 2021, the Company installed an additional treatment facility thereby raising storage capacity. As a result, the OSA was amended effective April 1, 2022, to increase the Rate to $1.25 per barrel.
Following are future minimum lease payments required by year under the OSA (including the subsequent Rate increase effective April 1, 2022) for each of the next five years and thereafter:
| 2022 | 1,530,000 | ||
| 2023 | 1,800,000 | ||
| 2024 | 1,800,000 | ||
| 2025 | 1,800,000 | ||
| 2026 and thereafter | 10,800,000 | ||
| Totals | $ | 17,730,000 |
Revenues from WCC totaled $272,435, which includes $180,000 and $92,435 of lease income and reimbursed expenses, respectively.
The Company is also party to various guarantees and cross-default agreements with multiple related parties of which also share common ownership and are controlled and managed by Ballengee. More specifically, the Company’s Maxus lease obligation (see Note 5) is guaranteed by Ballengee personally, its majority member – Jorgan Development LLC, and related entities that share common ownership and are managed by Ballengee – Endeavor Crude, LLC, Meridian Equipment Leasing, LLC, Silver Fuels Delhi, LLC, Silver Fuels Processing, LLC, Silver Fuels, LLC, and WCC.
| (5) | Financing Arrangement |
On December 28, 2021, the Company entered into a sale and leaseback transaction with Maxus Capital Group, LLC (“Maxus”). The Company assigned the China Grove Station to Maxus for consideration of $2,500,000 and entered into a lease agreement to lease the China Grove Station back from Maxus for 60 monthly payments of $39,313. At the end of the lease term, the Company has an option to purchase the China Grove Station back from Maxus at 35% of the original cost, or $875,000.
| 9 |
White Claw Colorado City, LLC
Notes to the Financial Statements
The Company has pledged 100% of its interests in accounts receivable as collateral for the lease obligation.
The Company is required to make minimum cash reserve payments of at least $16,100 each month in addition to the base lease payments until Maxus has received $471,756. The cash reserve payments are to be used in the event of default by the Company. As of December 31, 2021, there was not reserve cash balance as payments began in January 2022.
| (5) | Financing Arrangement – (continued) |
The terms of the lease agreement, including the Company’s option to purchase the China Grove Station from Maxus at the end of the lease term, preclude the Company from using sale and leaseback accounting treatment in accordance with FASB ASC 842-40. As such, the transaction is being accounted for as a financing arrangement, whereby the Company does not record a sale or derecognize the China Grove Station. The Company continues to record depreciation expense on the China Grove Station and has recorded a financial liability due to Maxus (shown as Maxus lease obligation in accompanying balance sheet).
The Company is using an imputed interest rate of 11.716% for the lease obligation, which results in the carrying value of the financial liability equating the estimated book value of the China Grove Station at the end of the lease term and the date at which the Company may exercise its buy-back option.
Future minimum lease payments for each of the next five years under the Maxus lease obligation and a reconciliation of undiscounted cash flows to the balance of the December 31, 2021 on the accompanying balance sheet are as follows:
| 2022 | 432,443 | |||
| 2023 | 471,756 | |||
| 2024 | 471,756 | |||
| 2025 | 471,756 | |||
| 2026 | 471,756 | |||
| Total minimum lease payments | 2,319,467 | |||
| Less: amount representing interest | (1,108,780 | ) | ||
| Present value of net minimum payments | 1,210,687 | |||
| Add: carrying value of lease obligation at end of lease term | 1,250,000 | |||
| Total lease obligation | 2,460,687 | |||
| Less: unamortized financing fees | (82,400 | ) | ||
| Total lease obligation, less unamortized financing fees | 2,378,287 | |||
| Less: current portion | (175,760 | ) | ||
| Total lease obligation, less current portion | $ | 2,202,527 |
| (6) | Risks and Uncertainties |
In response to the COVID-19 pandemic, many state and local governments instituted restrictions that substantially limited the operations of non-essential businesses and the activities of individuals. While some of these restrictions have been eased, there is still significant uncertainty around the extent and duration of those still in place and the possibility for restrictions to be increased again in the future. The extent to which the pandemic will impact the Company’s financial results in the coming periods depends on future developments, including where there are additional outbreaks of COVID-19 and the actions taken to contain or address the virus. The Company cannot reasonably estimate the overall length or severity of this pandemic, which if prolonged for a longer duration, could potentially have a material impact to the financial statements.
| 10 |
Exhibit 99.3
Silver Fuels Delhi, LLC
Financial Statements
as of and for the six months ended
June 30, 2022 and 2021
Silver Fuel Delhi, LLC
Table of Contents
| Independent Accountants’ Review Report | 1-2 |
| Balance Sheets as of June 30, 2022 and 2021 | 3 |
| Statements of Income for the six months ended June 30, 2022 and 2021 | 4 |
| Statements of Members' Equity (Deficit) for the six months ended June 30, 2022 and 2021 | 5 |
| Statements of Cash Flows for the six months ended June 30, 2022 and 2021 | 6 |
| Notes to the Financial Statements | 7-12 |
| i |
INDEPENDENT ACCOUNTANTS’ REVIEW REPORT
Management Silver Fuel Delhi, LLC Dallas, Texas
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We have reviewed the accompanying financial statements of Silver Fuels Delhi, LLC (a limited liability company), which comprise the balance sheets as of June 30, 2022 and 2021, and the related statements of income and members’ equity (deficit) and cash flows for the six months then ended, and the related notes to the financial statements. A review includes primarily applying analytical procedures to management’s financial data and making inquiries of company management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement whether due to fraud or error.
Accountants’ Responsibility
Our responsibility is to conduct the review engagements in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. Those standards require us to perform procedures to obtain limited assurance as a basis for reporting whether we are aware of any material modifications that should be made to the financial statements for them to be in accordance with accounting principles generally accepted in the United States of America. We believe that the results of our procedures provide a reasonable basis for our conclusion.
We are required to be independent of Silver Fuels Delhi, LLC and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements related to our review.
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Accountants’ Conclusion
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in accordance with accounting principles generally accepted in the United States of America.
Related-Party Transactions
As discussed in Notes 3 and 5 to the accompanying financial statements, all purchases during the six months ended June 30, 2021, and more than 85% of purchases during the six months ended June 30, 2022, are from entities in which the Company’s manager also controls. Our conclusion is not modified with respect to that matter.
Shreveport, Louisiana
October 11, 2022
| 2 |
Silver Fuel Delhi, LLC
Balance Sheets
as of June 30, 2022 and 2021
| 6/30/2022 | 6/30/2021 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 62,039 | $ | 0 | ||||
| Accounts receivable, Note 2 | 7,036,745 | 2,675,155 | ||||||
| Inventory, Note 2 | 96,081 | 111,380 | ||||||
| Total current assets | 7,194,865 | 2,786,535 | ||||||
| Property and equipment, net, Notes 2 and 4 | 2,327,253 | 2,501,403 | ||||||
| Other assets | ||||||||
| Reserve account, Note 6 | 369,109 | 360,000 | ||||||
| Due from related party, Note 5 | 0 | 11,381,350 | ||||||
| Security deposits | 41,012 | 41,012 | ||||||
| Total other assets | 410,121 | 11,782,362 | ||||||
| Total assets | 9,932,239 | 17,070,300 | ||||||
| Liabilities and members' equity (deficit) | ||||||||
| Current liabilities | ||||||||
| Accounts payable | 2,013,870 | 212,293 | ||||||
| Due to related party, Note 5 | 4,360,730 | 15,687,320 | ||||||
| Accrued expenses | 19,306 | 20,418 | ||||||
| Other payable | 0 | 1,693 | ||||||
| Current portion of lease obligations, Note 6 | 249,698 | 216,693 | ||||||
| Total current liabilities | 6,643,604 | 16,138,417 | ||||||
| Maxus lease obligations - less current portion, Note 6 | 1,584,128 | 1,799,671 | ||||||
| Members' equity (deficit) | 1,704,507 | (867,788 | ) | |||||
| Total liabilities and members’ equity (deficit) | $ | 9,932,239 | $ | 17,070,300 | ||||
See independent accountants' review report and accompanying notes to the financial statements.
| 3 |
Silver Fuel Delhi, LLC
Statements of Income
for the six months ended June 30, 2022 and 2021
| 06/30/2022 | 06/30/2021 | |||||||
| Sales | $ | 28,817,649 | $ | 13,541,025 | ||||
| Cost of sales | 27,246,494 | 12,477,831 | ||||||
| Gross profit | 1,571,155 | 2,0163,194 | ||||||
| Operating expenses | ||||||||
| Bank charges | 20 | 80 | ||||||
| Contract labor | 650 | 3,270 | ||||||
| Depreciation | 156,444 | 143,103 | ||||||
| Electrical services | 0 | 24,467 | ||||||
| Environmental services | 0 | 9,100 | ||||||
| Equipment rental | 1,800 | 2,409 | ||||||
| Fuel | 2,553 | 2,179 | ||||||
| IT services | 240 | 0 | ||||||
| Legal and accounting | 36,000 | 0 | ||||||
| Maintenance | 1,063 | 19,733 | ||||||
| Meter proving | 7,200 | 5,656 | ||||||
| Office supplies | 32 | 316 | ||||||
| Payroll expense | 98,773 | 64,515 | ||||||
| Postage and delivery | 123 | 85 | ||||||
| Propane | 0 | 697 | ||||||
| Property tax | 9,975 | 9,975 | ||||||
| Rent | 3,266 | 799 | ||||||
| Sales tax | 25,022 | 23,352 | ||||||
| Samples | 21,572 | 1,642 | ||||||
| Telephone and internet | 464 | 765 | ||||||
| Tools | 6,753 | 4,741 | ||||||
| Travel | 681 | 1,597 | ||||||
| Utilities | 12,940 | 7,765 | ||||||
| Total operating expenses | 385,571 | 326,246 | ||||||
| Income from operations | 1,185,584 | 736,948 | ||||||
| Other expense | ||||||||
| Interest expense | (160,643 | ) | (178,397 | ) | ||||
| Total other expense | (160,643 | ) | (178,397 | ) | ||||
| Net income | $ | 1,024,941 | $ | 558,551 | ||||
See independent accountants' review report and accompanying notes to the financial statements.
| 4 |
Silver Fuels Delhi, LLC
Statements of Members' Equity (Deficit)
for the six months ended June 30, 2022 and 2021
| Balance, as of December 31, 2020 | $ | (1,664,339 | ) | |
| Members' contributions | 238,000 | |||
| Net income | 558,551 | |||
Balance, as of June 30, 2021 | (867,788 | ) | ||
| Balance, as of December 31, 2021 | 1,872,617 | |||
| Members' contributions | 252,210 | |||
| Members' distributions | (1,445,261 | ) | ||
| Net income | 1,024,941 | |||
Balance, as of June 30, 2022 | $ | 1,704,507 |
See independent auditors' report and accompanying notes to the financial statements.
| 5 |
Silver Fuels Delhi, LLC
Statements of Cash Flows
for the years ended June 30, 2022 and 2021
| 6/30/2022 | 6/30/2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | 1,024,941 | $ | 558,551 | ||||
| Adjustments to reconcile net income to net cash provided by | ||||||||
| (used in) operating activities: | ||||||||
| Depreciation | 156,444 | 143,103 | ||||||
| Amortization of financing fees | 17,078 | 17,078 | ||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable | (4,043,040 | ) | (1,104,106 | ) | ||||
| Prepaid expenses | ||||||||
| Reserve account | 0 | (144,000 | ) | |||||
| Inventory | 3,821 | (68,636 | ) | |||||
| Increase (decrease) in: | ||||||||
| Accounts payable | 6,267,917 | 117,405 | ||||||
| Other payable | 0 | 1,693 | ||||||
| Accrued expenses | 19,306 | 20,418 | ||||||
| Net cash provided by (used in) operating activities | 3,446,467 | (458,494 | ) | |||||
| Cash flows from investing activities | ||||||||
| Purchases of property and equipment | 0 | (143,283 | ) | |||||
| Net cash used in investing activities | 0 | (143,283 | ) | |||||
| Cash flows from financing activities | ||||||||
| Net increase in due to affiliate | (787,209 | ) | 354,504 | |||||
| Repayments on financing arrangements | (112,168 | ) | (97,439 | ) | ||||
| Members' contributions | 252,210 | 238,000 | ||||||
| Members' distributions | (2,820,522 | ) | 0 | |||||
| Net cash provided by (used in) investing activities | (3,467,689 | ) | 495,065 | |||||
| Net decrease in cash and cash equivalents | (21,222 | ) | (106,712 | ) | ||||
| Beginning cash and cash equivalents | 83,261 | 106,712 | ||||||
| Ending cash and cash equivalents | $ | 62,039 | $ | 0 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | 134,234 | $ | 150,876 | ||||
| Supplementary non-cash investing and financing activities | ||||||||
| Assignment of members' receivables to distributions | $ | 1,375,261 | $ | 0 | ||||
| 6 |
Silver Fuels Delhi, LLC
Notes to the Financial Statements
| (1) | Nature of Business |
Silver Fuels Delhi, LLC, (the “Company”), is a privately held limited liability company and operates a crude oil blending facility in Delhi, Louisiana. The Company was organized in January, 2018.
| (2) | Summary of Significant Accounting Policies |
Basis of accounting - The financial statements of the Company have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
Basis of presentation and use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents - For purposes of reporting cash flows, cash and cash equivalents includes all cash on hand and cash on deposit with maturities of less than three months.
Trade accounts receivable – Trade accounts receivable primarily relates to sales to customers for crude oil. Differences between the amounts due from customers and the amounts management expects to collect are reported in the results of operations of the year in which those differences are determined. An offsetting entry to a valuation allowance for account balances that are outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to an accounts receivable. As of June 30, 2022 and 2021, the Company had no allowance for doubtful accounts. Trade accounts receivable are zero interest bearing.
Trade accounts receivable in an amount up to $1,213,522 is used as collateral for a loan in Ballengee Holdings, LLC, a related party.
Inventory – Inventory is stated at cost or net realizable value on the first-in, first-out basis.
Property and equipment – Property and equipment is stated at cost. Depreciation is computed by the straight-line method over the useful life of the assets.
Routine maintenance and repairs are charged to operating expense, while costs of improvements and replacements are capitalized. When an asset is retired or sold, its cost and related accumulated depreciation are removed from the accounts, and the difference between the net book value of the asset and proceeds from disposition is recognized as a gain or loss in the statement of operations.
| 7 |
Silver Fuels Delhi, LLC
Notes to the Financial Statements
| (2) | Summary of Significant Accounting Policies – (continued) |
Asset retirement obligations – Under ASC 410-20, Asset Retirement and Environmental Obligations – Asset Retirement Obligations, which relates to accounting requirements for costs associated with legal obligations to retire tangible, long-lived assets, the Company records an Asset Retirement Obligation (“ARO”) at fair value in the period in which it is incurred by increasing the carrying amount of the related long-lived asset. In each subsequent period, liability is accreted over time towards the ultimate obligation amount and the capitalized costs are depreciated over the useful life of the related asset. The Company did not identify any significant or material cost after review; thus, no ARO obligation is recorded for the six months ended June 30, 2022 or 2021.
Impairment of long-lived assets - Long-lived assets such as property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management reviews all material assets annually for possible impairment. If such assets are considered to be impaired, the impairment recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. No impairment was considered necessary during the six months ended June 30, 2022 or 2021.
Revenue recognition – Revenues from the sale of crude oil are recognized at the time title to the product sold transfers to the purchaser, which occurs upon delivery of the product to the purchaser or to the purchaser’s designated delivery points, at contractual prices.
Financing fees – Financing fees represent costs incurred in relation to the Maxus lease obligations (see Note 6). Such costs have been deferred and are being amortized on a straight-line basis over the five-year terms of the related obligations. The Maxus lease obligation, net of current portion is recorded on the accompanying balance sheets net of unamortized debt issuance costs. A total of $17,078 have been amortized to interest expense during each of the six months ended June 30, 2022 and 2021.
Income taxes - The Company is a limited liability company (“LLC”) that is treated as a partnership for federal and state income tax purposes. As such, the Company does not pay income taxes, as any income or loss and credits are included in the tax returns of the members. Accordingly, no provision has been made for income taxes in the financial statements.
Under the provisions of FASB ASC 740-10, the Company records a liability for uncertain tax positions when probable that a loss has been incurred and the amount can be reasonably estimated. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings.
| (2) | Summary of Significant Accounting Policies – (continued) |
Subsequent events – Management of the Company has evaluated subsequent events, for recognition and disclosure, through October 11, 2022, the date the financial statements were available to be issued. See Note 9.
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Silver Fuels Delhi, LLC
Notes to the Financial Statements
| (3) | Major Customers, Supplier and Concentration of Credit Risk |
The Company had two (2) customers (one that is a related party – see Note 5) whose revenue individually represented 99% of the Company’s total revenue for the six months ended June 30, 2022 and one (1) customer whose revenue individually represented 94% of the Company’s total revenue for the six months ended June 30, 2021. These customers also represent 100% of the accounts receivable as of June 30, 2022 and 2021.
The Company had two (2) major suppliers (one that is a related party – see Note 5) that accounted for 100% of crude oil purchases for the six months ended June 30, 2022, and had two (2) major suppliers (both are related parties – see Note 5) that accounted for 100% of crude oil purchases for the six months ended June 30, 2021.
Additionally, the Company and its major customers and suppliers operate in the crude oil industry. The industry concentration has the potential to impact the Company’s overall exposure to credit risk in that its customers and suppliers may be similarly affected by changes in economic, industry, or other conditions. There is risk that the Company would not be able to identify and access replacement markets at comparable margins.
The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to certain limits. The Company has not experienced any losses in such accounts.
| (4) | Property and Equipment |
The following is a summary of property and equipment as of June 30, 2022 and 2021:
| 6/30/2022 | 6/30/2021 | |||||||
| Land | 140,000 | 140,000 | ||||||
| Delhi crude facility | 2,111,232 | 2,111,232 | ||||||
| Station improvements | 750,852 | 750,852 | ||||||
| Tank farm | 266,797 | 143,283 | ||||||
| Other equipment | 13,000 | 0 | ||||||
| Sub-total | $ | 3,281,881 | $ | 3,145,367 | ||||
| Less: accumulated depreciation | 954,628 | 643,964 | ||||||
| Totals | $ | 2,327,253 | $ | 2,501,403 | ||||
Depreciation expense related to property and equipment was $156,444 and $143,103, respectively, for the six months ended June 30, 2022 and 2021.
| (5) | Related-Party Transactions |
During the six months ended June 30, 2022 and 2021, the Company entered into transactions to purchase crude oil with Bacchus Capital, LLC (“Bacchus”) and White Claw Crude, LLC (“WCC”). Bacchus and WCC are LLCs controlled by James H. Ballengee (“Ballengee”), the manager of Silver Fuels Delhi, LLC.
During the six months ended June 30, 2022, the Company purchased approximately $0 and $23,380,047 in crude oil from Bacchus and WCC, respectively. During the six months ended June 30, 2021, the Company purchased approximately $8,775,141 and $3,493,920 in crude oil from Bacchus and WCC, respectively.
| 9 |
Silver Fuels Delhi, LLC
Notes to the Financial Statements
As of June 30, 2022, the Company had balances due to Bacchus and WCC of $0 and $4,360,730, respectively. As of June 30, 2021, the Company had balances due to Bacchus and WCC of $15,687,320 and $0, respectively. Such amounts are included in current liabilities as due to related party in the accompanying balance sheets.
During the six months ended June 30, 2021, the Company made short-term operating advances to WCC. The advances had no stated terms. As of June 30, 2021, the Company had a balance due under these advances totaling $11,314,047. Such amount is included in due from related party in the accompanying balance sheets.
During the six months ended June 30, 2022 and 2021, the Company entered into a crude petroleum supply (“CPS”) agreement with WCC. The CPS requires that the Company buy and WCC sell greater than or equal to 1,000 barrels per day. Under the terms of the CPS, WCC is responsible for any loss allowance related to the quantities sold. During the six months ended June 30, 2022 and 2021, WCC was responsible for $777,614 and $230,729, respectively, in loss allowances. These amounts are included in sales for the six months ended June 30, 2022 and 2021, in the accompanying statements of income.
During the six months ended June 30, 2022, the Company entered into transactions to sell crude oil to White Claw NGL, LLC (WCNGL). WCNGL is an LLC controlled by Ballengee. The Company sold approximately $3,811,552 to WCNGL during the six months ended June 30, 2022. As of June 30, 2022, the Company had balance due from WCNGL in the amount of$1,889,054. This amount is included in accounts receivables in the accompanying balance sheet.
| (5) | Related-Party Transactions – ( continued) |
During the six months ended June 30, 2022 and 2021, the Company reimbursed Ballengee Holdings, LLC, (“BH”) for payroll costs related to BH employees performing work for SFD. BH is an LLC controlled by Ballengee. BH bills the Company periodically for payroll costs incurred for work performed for the Company. The total amount billed for the six months ended June 30, 2022 and 2021, was approximately $98,773 and $64,515, respectively, and is included in payroll expense in the accompanying statements of income. As of June 30, 2022 and 2021, the Company had a balance due of $48,542 and $107,115, respectively, to BH and such amounts are included in accounts payable in the accompanying balance sheets.
During the six months ended June 30, 2021, the Company made short-term operating advances to Silver Fuels, NGL Processing, LLC, (“SFNP”) in the amount of $67,303. The advances have no stated terms. SFNP is an LLC controlled by James Ballengee. As of June 30, 2021, the Company had a balance due from SFNP for $67,303 that is included in due from related party on the accompanying balance sheet.
The Company is also a guarantor on a lease obligation of White Claw Colorado City, LLC, a related party controlled by Ballengee.
| (6) | Financing Arrangements |
On March 17, 2020, the Company entered into two sale and leaseback transactions with Maxus Capital Group, LLC (“Maxus”).
The first transaction involved the Company assigning twelve 400-barrel steel storage tanks, two truck offloading transfer meters and two pipeline transfer meters located in Richland Parish, Louisiana to Maxus for consideration of $1,025,000 and subsequently entering into an agreement to lease the assets back from Maxus for 60 monthly payments of $22,100. At the end of the lease term there is an option purchase the assets back from Maxus at a purchase price of $1.
| 10 |
Silver Fuels Delhi, LLC
Notes to the Financial Statements
The second transaction involved the Company assigning all remaining property at the blending facility in Richland Parish, Louisiana with the exception of land, to Maxus for consideration of $1,350,861 and subsequently entering into an agreement to lease the assets back from Maxus for 60 monthly payments of $18,912. At the end of the lease term, there is an option to purchase the assets back from Maxus at a purchase price of $877,519.
The 9.39 acres of land located Richland Parish, Louisiana, which contains the blending facility, is being used as collateral for both lease obligations.
| (6) | Financing Arrangements – (continued) |
The Company is required to make minimum cash reserve payments of at least $24,000 ($8,945 and $15,055 for the first and second lease, respectively) each month in addition to the base lease payments until the balance in the account reaches $369,109. The cash reserve payments are to be used in the event of a default by the Company. At the end of the term Maxus will return the balance of any cash reserve payments. As of June 30, 2022 and 2021, the balances of the cash reserve payments were $369,109 and $360,000, respectively.
The terms of the lease agreements, including the Company’s option to purchase the leased assets from Maxus at the end of the lease terms, preclude the Company from using sale and leaseback accounting treatment in accordance with FASB ASC 842-40. As such, the transactions are being accounted for as financing arrangements, whereby the Company does not record a sale or derecognize the assets being leased. The Company continues to record depreciation expense on the leased assets and has recorded financial liabilities due to Maxus (shown as Maxus lease obligations in accompanying balance sheets). The Company is using imputed interest rates of 17.73% and 10.36% for the first and second lease obligations, respectively, which results in the carrying value of the financial liabilities equating the estimated book value of the leased assets at the end of the lease terms and the dates at which the Company may exercise its buy-back options.
Future minimum lease payments for each of the next three years under the Maxus lease obligations and a reconciliation of undiscounted cash flows to the balance of the lease obligation as of June 30, 2022 on the accompanying balance sheet are as follows:
| Twelve months ended June 30, 2023 | $ | 492,145 | ||
| Twelve months ended June 30, 2024 | 492,145 | |||
| Twelve months ended June 30, 2025 | 369,109 | |||
| Total minimum lease payments | 1,353,399 | |||
| Less: amount representing interest | (570,528 | ) | ||
| Present value of net minimum payments | 782,871 | |||
| Add: carrying value of lease obligation at end of lease term | 1,144,883 | |||
| Total lease obligation | 1,927,754 | |||
| Less: unamortized financing fees | (93,928 | ) | ||
| Total lease obligation, less unamortized financing fees | 1,833,826 | |||
| Less: current portion | (249,698 | ) | ||
| Total lease obligation, less current portion | $ | 1,584,128 |
| 11 |
Silver Fuels Delhi, LLC
Notes to the Financial Statements
| (7) | Legal Matters |
The Company is subject to various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company.
| (8) | Risks and Uncertainties |
In response to the COVID-19 pandemic, many state and local governments instituted restrictions that substantially limited the operations of non-essential businesses and the activities of individuals. While some of these restrictions have been eased, there is still significant uncertainty around the extent and duration of those still in place and the possibility for restrictions to be increased again in the future. The extent to which the pandemic will impact the Company’s financial results in the coming periods depends on future developments, including where there are additional outbreaks of COVID-19 and the actions taken to contain or address the virus. The Company cannot reasonably estimate the overall length or severity of this pandemic, which if prolonged for a longer duration, could potentially have a material impact to the financial statements.
| (9) | Sale of Membership Interest and Subsequent Event |
On June 15, 2022, the Company’s members, Jorgan Development, LLC and JBAH Holdings, LLC, entered into a membership purchase agreement (MPA) with Vivakor, Inc. to sell 100% of its membership interest in the Company. This transaction closed subsequent to June 30, 2022 on August, 1, 2022.
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Exhibit 99.4
White Claw Colorado City, LLC
Financial Statements
as of June 30, 2022 and 2021 and for the
six months ended June 30, 2022 and for
the period April 24, 2021 (Inception) to
June 30, 2021
White Claw Colorado City, LLC
Table of Contents
| Independent Accountants’ Review Report | 1-2 |
| Balance Sheets as of June 30, 2022 and 2021 | 3 |
Statements of Operations for the six months ended June 30, 2022 and for the period April 24, 2021 (Inception) to June 30, 2021 |
4 |
Statements of Members’ Equity for the six months ended June 30, 2022 and for the period April 24, 2021 (Inception) to June 30, 2021 |
5 |
Statements of Cash Flows for the six months ended June 30, 2022 and for the period April 24, 2021 (Inception) to June 30, 2021 |
6 |
| Notes to the Financial Statements | 7-11 |
| i |
INDEPENDENT ACCOUNTANTS’ REVIEW REPORT
Management White Claw Colorado City, LLC Dallas, Texas
|
|
We have reviewed the accompanying financial statements of White Claw Colorado City, LLC (a limited liability company), which comprise the balance sheets as of June 30, 2022 and 2021 and the related statements of operations, members’ equity, and cash flows for the six months ended June 30, 2022 and for the period April 24, 2021 (Inception) to June 30, 2021, and the related notes to the financial statements. A review includes primarily applying analytical procedures to management’s financial data and making inquiries of company management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Accountants’ Responsibility
Our responsibility is to conduct the review engagements in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. Those standards require us to perform procedures to obtain limited assurance as a basis for reporting whether we are aware of any material modifications that should be made to the financial statements for them to be in accordance with accounting principles generally accepted in the United States of America. We believe that the results of our procedures provide a reasonable basis for our conclusion.
We are responsible to be independent of White Claw Colorado City, LLC and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements related to our review.
| 1 |
Accountants’ Conclusion
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in accordance with accounting principles generally accepted in the United States of America.
Related-Party Transactions
As discussed in Notes 3 and 4 to the accompanying financial statements, all revenues are derived from an entity in which the Company’s manager also controls. Our conclusion is not modified with respect to that matter.
Shreveport, Louisiana
October 11, 2022
| 2 |
White Claw Colorado City, LLC
Balance Sheets
as of June 30, 2022 and 2021
| 6/30/2022 | 6/30/2021 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | 39,802 | $ | 0 | ||||
| Accounts receivable, Note 2 | 480,972 | 0 | ||||||
| Prepaid expenses | 60,384 | 0 | ||||||
| Total current assets | 581,158 | 0 | ||||||
| Property and equipment, Note 2 | ||||||||
| China Grove Station | 2,541,518 | 2,541,518 | ||||||
| Less: accumulated depreciation | (296,511 | ) | (41,667 | ) | ||||
| Total property and equipment, net | 2,245,007 | 2,499,851 | ||||||
| Other assets | ||||||||
| Deposits | 72,313 | 0 | ||||||
| Total other assets | 72,313 | 0 | ||||||
| Total assets | 2,898,478 | 2,499,851 | ||||||
| Liabilities and members' equity | ||||||||
| Current liabilities | ||||||||
| Trade payables | 147,855 | 0 | ||||||
| Current portion of lease obligation, Note 5 | 187,147 | 0 | ||||||
| Total current liabilities | 335,002 | 0 | ||||||
| Maxus lease obligation - less current portion, Note 5 | 2,106,212 | 0 | ||||||
| Members' equity | 457,264 | 2,499,851 | ||||||
| Total liabilities and member's equity | $ | 2,898,478 | $ | 2,499,851 | ||||
See independent accountants' review report and accompanying notes to the financial statements.
| 3 |
White Claw Colorado City, LLC
Statements of Operations
for the six months ended June 30, 2022 and for the period April 24, 2021 (Inception) to June 30, 2021
| 6/30/2022 | 6/30/2021 | |||||||
| Revenues | ||||||||
| Storage lease income | $ | 720,000 | $ | 0 | ||||
| Reimbursed expenses - related party | 30,972 | 0 | ||||||
| Total revenues | 750,972 | 0 | ||||||
Operating expenses | ||||||||
| Reimbursed expenses - related party | 30,972 | 0 | ||||||
| Bank service charges | 32 | 0 | ||||||
| Depreciation | 129,844 | 41,667 | ||||||
| Professional fees | 18,014 | 0 | ||||||
| Total operating expenses | 178,862 | 41,667 | ||||||
Income (loss) from operations | 572,110 | (41,667 | ) | |||||
Other income (expense) | ||||||||
| Interest expense | (152,264 | ) | 0 | |||||
| Total other expense | (152,264 | ) | 0 | |||||
| Net income (loss) | $ | 419,846 | $ | (41,667 | ) | |||
See independent accountants' review report and accompanying notes to the financial statements.
| 4 |
White Claw Colorado City, LLC
Statements of Members' Equity
for the six months ended June 30, 2022 and for the period April 24, 2021 (Inception) to June 30, 2021
| Balance, April 24, 2021 | $ | 0 | ||
| Net loss | (41,667 | ) | ||
| Members' contributions | 2,541,518 | |||
Balance June 30, 2021 | 2,499,851 | |||
Balance, December 31, 2021 | 1,600,190 | |||
| Net income | 419,846 | |||
| Members' contributions | 237,650 | |||
| Members' distributions | (1,800,422 | ) | ||
Balance, June 30, 2022 | $ | 457,264 |
See independent accountants' review report and accompanying notes to the financial statements.
| 5 |
White Claw Colorado City, LLC
Statements of Cash Flows
for the six months ended June 30, 2022 and for the period April 24, 2021 (Inception) to June 30, 2021
| 6/30/2022 | 6/30/2021 | |||||||
| Cash flows from operating activities | ||||||||
Net income (loss) | $ | 419,846 | $ | (41,667 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation | 129,844 | 41,667 | ||||||
| Amortization of financing fees | 8,240 | |||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable | (208,537 | ) | 0 | |||||
| Prepaid expenses | (60,384 | ) | 0 | |||||
Increase (decrease) in: Accounts payable | 55,843 | 0 | ||||||
| Net cash provided by operating activities | 344,852 | 0 | ||||||
Cash flows from financing activities | ||||||||
| Repayments on financing arrangements | (93,168 | ) | 0 | |||||
| Members' contributions | 237,650 | 0 | ||||||
| Members' distributions | (1,800,422 | ) | 0 | |||||
| Net cash used in investing activities | (1,655,940 | ) | 0 | |||||
| Net decrease in cash and cash equivalents | (1,311,088 | ) | 0 | |||||
| Beginning cash and cash equivalents | 1,350,890 | 0 | ||||||
Ending cash and cash equivalents | 39,802 | 0 | ||||||
Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | 144,024 | $ | 0 | ||||
| Supplementary non-cash investing and financing activities | ||||||||
| Member contribution of property and equipment | $ | 0 | $ | 2,541,517 | ||||
See independent accountants' review report and accompanying notes to the financial statements.
| 6 |
White Claw Colorado City, LLC
Notes to the Financial Statements
| (1) | Nature of Business |
White Claw Colorado City, LLC (the “Company”) is a privately held, limited liability company and is primarily engaged in the business of crude oil storage. The Company operates a crude oil, natural gas liquids, condensate, and liquid hydrocarbon receipt, throughput, processing, blending, and delivery terminal, commonly known as the China Grove Station (the “China Grove Station”), located in Colorado City, Texas.
| (2) | Summary of Significant Accounting Policies |
Basis of accounting – The financial statements of the Company have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
Basis of presentation and use of estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents - Cash and cash equivalents includes all cash on hand and cash on deposit with maturities of less than three months.
Accounts receivable – All of the Company’s accounts receivable are from one customer, White Claw Crude, LLC (“WCC”), a related party (Note 4). All accounts receivable are generated from monthly lease payments due for the storage of crude oil and monthly reimbursable operating expenses, in accordance with the Oil Storage Agreement (“OSA”). Accounts receivable are recorded at net realizable value and therefore, no reserve has been recorded as management considers such receivables to be fully collectible. Upon management’s determination of uncollectability, such amounts would be written off directly through bad debt expense.
Property and equipment – Property and equipment is stated at cost. Depreciation is computed by the straight-line method over the useful lives of the assets. Depreciation expense related to property and equipment was $129,844 and $41,667 for the six months ended June 30, 2022 and for the period from April 24, 2021 (Inception) to June 30, 2021, respectively.
Routine maintenance and repairs are charged to operating expense, while costs of improvements and replacements are capitalized. When an asset is retired or sold, its cost and related accumulated depreciation are removed from the accounts, and the difference between the net book value of the asset and proceeds from disposition is recognized as a gain or loss in the statement of income.
| 7 |
White Claw Colorado City, LLC
Notes to the Financial Statements
| (2) | Summary of Significant Accounting Policies – (continued) |
Asset retirement obligations – Under ASC 410-20, Asset Retirement and Environmental Obligations – Asset Retirement Obligations, which relates to accounting requirements for costs associated with legal obligations to retire tangible, long-lived assets, the Company records an Asset Retirement Obligation (“ARO”) at fair value in the period in which it is incurred by increasing the carrying amount of the related long-lived asset. In each subsequent period, liability is accreted over time towards the ultimate obligation amount and the capitalized costs are depreciated over the useful life of the related asset. The Company did not identify any significant or material cost after review; thus, no ARO obligation is recorded for the six months ended June 30, 2022 and for the period April 24, 2021 (Inception) to June 30, 2022.
Impairment of long-lived assets - Long-lived assets such as property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management reviews all material assets annually for possible impairment. If such assets are considered to be impaired, the impairment recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. No impairment was considered necessary for the six months ended June 30, 2022 and for the period from April 24, 2021 (Inception) to June 30, 2021.
Revenue recognition – All of the Company’s revenues are generated from the rental of oil storage space at the China Grove Station and the reimbursement of operating expenses in accordance with the OSA.
The Company recognizes oil storage lease income monthly on a straight-line basis over the life of the lease. Reimbursed expense income is recognized as the related expenses are incurred.
Financing fees – Financing fees represent costs incurred in relation to the Maxus lease obligation (see Note 5). Such costs have been deferred and are being amortized on a straight-line basis over the five-year term of the related obligation. The Maxus lease obligation, net of current portion is recorded on the accompanying balance sheet net of unamortized debt issuance costs. A total of$8,240 and $0 have been amortized to interest expense for the six months ended June 30, 2022 and for the period from April 24, 2021 (Inception) to June 30, 2021, respectively.
Income taxes – The Company is treated as a partnership for federal and state income tax purposes. As such, the Company does not pay income taxes, as any income or loss and credits are included in the tax returns of the members. Accordingly, no provision has been made for income taxes in the consolidated financial statements.
Under the provisions of FASB ASC 740-10, the Company records a liability for uncertain tax positions when probable that a loss has been incurred and the amount can be reasonably estimated. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings.
| (2) | Summary of Significant Accounting Policies – (continued) |
Subsequent events – Management of the Company has evaluated subsequent events, for recognition and disclosure, through October 11, 2022, the date the financial statements were available to be issued. See Note 7.
| 8 |
White Claw Colorado City, LLC
Notes to the Financial Statements
| (3) | Major Customers and Concentration of Credit Risk |
The Company’s only customer is WCC. WCC accounts for the entire balance of accounts receivable as of June 30, 2022 and for all the Company’s revenues for the six months ended June 30, 2022. Additionally, the Company and WCC operate in the crude oil industry. The industry concentration has the potential to impact the Company’s overall exposure to credit risk in that its customer may be similarly affected by changes in economic, industry or other conditions. There is risk that the Company would not be able to identify and access replacement markets at comparable margins.
The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to certain limits. The Company has not experienced any losses in such accounts.
| (4) | Related-Party Transactions |
As disclosed in Notes 2 and 3, the Company’s only customer is WCC. The Company shares common ownership with WCC and is controlled by and shares the same Manager, James H. Ballengee (“Ballengee”).
Originally effective January 1, 2021, and later amended with an effective date of October 1, 2021, the Company and WCC entered into an OSA. The OSA provides that WCC store crude oil, condensate, natural gas liquids, and constituent liquid hydrocarbons (“Product”) at the China Grove Station until expiration of the lease on December 31, 2031.
The OSA provides that WCC make monthly lease payments to the Company in an amount equal to the greater of (a) the Minimum Volume Commitment (“MVC”), which is 120,000 barrels of Product multiplied time fifty cents ($0.50) per barrel (the “Rate”), or $60,000 or (b) the average daily volume of Product stored at the China Grove Station multiplied by the applicable Rate. Additionally, the OSA requires that WCC reimburse the Company for certain operating expenses.
The OSA also calls for a $0.25 per barrel increase in the Rate upon occurrence of the China Grove Station either being directly or indirectly physical connected by bi-directional pipeline to the facilities of Medallion Midstream, LLC, or its successors, at or near Colorado City, Texas (the “Connection Event”). As of the date the financial statements were available to be issued, the Connection Event has not occurred, and it is not currently known when or if it will occur.
| (4) | Related-Party Transactions – (continued) |
During the six months ended June 30, 2022, the Company installed an additional treatment facility thereby raising storage capacity. As a result, the OSA was amended effective April 1, 2022, to increase the Rate to $1.25 per barrel.
Following are future minimum lease payments required by year under the OSA (including the subsequent Rate increase effective April 1, 2022) for each of the next five years and thereafter:
| Twelve months ended June 30, 2023 | 1,800,000 | ||
| Twelve months ended June 30, 2024 | 1,800,000 | ||
| Twelve months ended June 30, 2025 | 1,800,000 | ||
| Twelve months ended June 30, 2026 | 1,800,000 | ||
| June 30, 2026 and thereafter | 9,900,000 | ||
| Totals | $ | 17,100,000 |
| 9 |
White Claw Colorado City, LLC
Notes to the Financial Statements
During the six months ended June 30, 2022, revenues from WCC totaled $750,972, which includes $720,000 and $30,972 of lease income and reimbursed expenses, respectively. There were no revenues received by the Company during the period from April 24, 2021 (Inception) to June 30, 2021 as the OSA did not officially commence until October 1, 2021.
The Company is also party to various guarantees and cross-default agreements with multiple related parties of which also share common ownership and are controlled and managed by Ballengee. More specifically, the Company’s Maxus lease obligation (see Note 5) is guaranteed by Ballengee personally, its majority member – Jorgan Development LLC, and related entities that share common ownership and are managed by Ballengee – Endeavor Crude, LLC, Meridian Equipment Leasing, LLC, Silver Fuels Delhi, LLC, Silver Fuels Processing, LLC, Silver Fuels, LLC, and WCC.
| (5) | Financing Arrangement |
On December 28, 2021, the Company entered into a sale and leaseback transaction with Maxus Capital Group, LLC (“Maxus”). The Company assigned the China Grove Station to Maxus for consideration of $2,500,000 and entered into a lease agreement to lease the China Grove Station back from Maxus for 60 monthly payments of $39,313. At the end of the lease term, the Company has an option to purchase the China Grove Station back from Maxus at 35% of the original cost, or $875,000. The Company has pledged 100% of its interests in accounts receivable as collateral for the lease obligation.
The Company is required to make minimum cash reserve payments of at least $16,100 each month in addition to the base lease payments until Maxus has received $471,756. The cash reserve payments are to be used in the event of default by the Company. As of June 30, 2022 and 2021, there was no reserve cash balance as payments began in July, 2022.
| (5) | Financing Arrangement – (continued) |
The terms of the lease agreement, including the Company’s option to purchase the China Grove Station from Maxus at the end of the lease term, preclude the Company from using sale and leaseback accounting treatment in accordance with FASB ASC 842-40. As such, the transaction is being accounted for as a financing arrangement, whereby the Company does not record a sale or derecognize the China Grove Station. The Company continues to record depreciation expense on the China Grove Station and has recorded a financial liability due to Maxus (shown as Maxus lease obligation in accompanying balance sheet).
The Company is using an imputed interest rate of 11.716% for the lease obligation, which results in the carrying value of the financial liability equating the estimated book value of the China Grove Station at the end of the lease term and the date at which the Company may exercise its buy-back option.
| 10 |
White Claw Colorado City, LLC
Notes to the Financial Statements
Future minimum lease payments for each of the next five years under the Maxus lease obligation and a reconciliation of undiscounted cash flows to the balance of the lease obligation as of June 30, 2022 on the accompanying balance sheet are as follows:
| Twelve months ended June 30, 2023 | 432,443 | |||
| Twelve months ended June 30, 2024 | 471,756 | |||
| Twelve months ended June 30, 2025 | 471,756 | |||
| Twelve months ended June 30, 2026 | 471,756 | |||
| Twelve months ended June 30, 2027 | 235,878 | |||
| Total minimum lease payments | 2,083,589 | |||
| Less: amount representing interest | (966,070 | ) | ||
| Present value of net minimum payments | 1,117,519 | |||
| Add: carrying value of lease obligation at end of lease term | 1,250,000 | |||
| Total lease obligation | 2,367,519 | |||
| Less: unamortized financing fees | (74,160 | ) | ||
| Total lease obligation, less unamortized financing fees | 2,293,359 | |||
| Less: current portion | (187,147 | ) | ||
| Total lease obligation, less current portion | $ | 2,106,212 |
| (6) | Risks and Uncertainties |
In response to the COVID-19 pandemic, many state and local governments instituted restrictions that substantially limited the operations of non-essential businesses and the activities of individuals. While some of these restrictions have been eased, there is still significant uncertainty around the extent and duration of those still in place and the possibility for restrictions to be increased again in the future. The extent to which the pandemic will impact the Company’s financial results in the coming periods depends on future developments, including where there are additional outbreaks of COVID-19 and the actions taken to contain or address the virus. The Company cannot reasonably estimate the overall length or severity of this pandemic, which if prolonged for a longer duration, could potentially have a material impact to the financial statements.
| (7) | Sale of Membership Interests and Subsequent Event |
On June 15, 2022, the Company’s members, Jorgan Development, LLC and JBAH Holdings, LLC, entered into a membership purchase agreement (MPA) with Vivakor, Inc. to sell 100% of its membership interests in the Company. This transaction closed subsequent to June 30, 2022 on August 1, 2022.
| 11 |
Exhibit 99.5
VIVAKOR, INC., SILVER FUELS DELHI, LLC AND WHITE CLAW COLORADO CITY, LLC
Unaudited Proforma Consolidated Balance Sheets
June 30, 2022
| ASSETS | Vivakor, Inc. | Silver Fuels Delhi, LLC | White Claw Colorado City, LLC | Adjustments | Consolidated | |||||||||||||||
| Current assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 4,908,334 | $ | 62,039 | $ | 39,802 | $ | (101,841 | ) | (b) | $ | 4,908,334 | ||||||||
| Cash and cash equivalents attributed to variable interest entity | 296,257 | – | – | – | 296,257 | |||||||||||||||
| Accounts Receivable | 845 | 7,036,745 | 480,972 | (7,517,717 | ) | (b) | 845 | |||||||||||||
| Marketable securities | 1,818,029 | – | – | – | 1,818,029 | |||||||||||||||
| Inventories | 222,000 | 96,081 | – | – | 318,081 | |||||||||||||||
| Precious metal concentrate | 1,166,709 | – | – | – | 1,166,709 | |||||||||||||||
| Other assets | 237,422 | 410,121 | 132,697 | – | 780,240 | |||||||||||||||
| Total current assets | 8,649,596 | 7,604,986 | 653,471 | (7,619,558 | ) | 9,288,495 | ||||||||||||||
| Other investments | 4,000 | – | – | – | 4,000 | |||||||||||||||
| Notes receivable | 1,150,743 | – | – | – | 1,150,743 | |||||||||||||||
| Property and equipment, net | 25,878,930 | 2,327,253 | 2,245,007 | – | 30,451,190 | |||||||||||||||
| Rights of use assets- operating leases | 721,550 | – | – | – | 721,550 | |||||||||||||||
| License agreement, net | 2,291,942 | – | – | – | 2,291,942 | |||||||||||||||
| Intellectual property, net | 13,002,504 | – | – | 13,662,037 | (c)(d) | 26,664,541 | ||||||||||||||
| Goodwill | – | – | – | 17,928,520 | (b) | 17,928,520 | ||||||||||||||
| Total assets | $ | 51,699,265 | $ | 9,932,239 | $ | 2,898,478 | $ | 23,970,999 | $ | 88,500,981 | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||
| Accounts payable and accrued expenses | $ | 3,061,610 | $ | 6,393,906 | $ | 147,855 | $ | (6,541,761 | ) | (b) | $ | 3,061,610 | ||||||||
| Operating lease liabilities, current | 364,103 | – | – | – | 364,103 | |||||||||||||||
| Financing lease liabilities, current | – | 249,698 | 187,147 | – | 436,845 | |||||||||||||||
| Loans and notes payable, current | 962,405 | – | – | 1,757,694 | (a)(e) | 2,720,099 | ||||||||||||||
| Loans and notes payable, current attributed to variable interest entity | 2,308,232 | – | – | – | 2,308,232 | |||||||||||||||
| Long-term debt (working interest royalty programs), current | 8,565 | – | – | – | 8,565 | |||||||||||||||
| Total current liabilities | 6,704,915 | 6,643,604 | 335,002 | (4,784,067 | ) | 8,899,454 | ||||||||||||||
| Operating lease liabilities, long term | 414,947 | – | – | – | 414,947 | |||||||||||||||
| Financing lease liabilities, long term | – | 1,584,128 | 2,106,212 | – | 3,690,340 | |||||||||||||||
| Loans and notes payable, long term | 543,869 | – | – | 27,854,900 | (a) | 28,398,769 | ||||||||||||||
| Long-term debt (working interest royalty programs) | 5,017,592 | – | – | – | 5,017,592 | |||||||||||||||
| Deferred income tax liabilities | 5,156,899 | – | – | – | 5,156,899 | |||||||||||||||
| Total liabilities | 17,838,222 | 8,227,732 | 2,441,214 | 23,070,833 | 51,578,001 | |||||||||||||||
| Stockholders' equity: | ||||||||||||||||||||
| Common stock, $.001 par value; 41,666,667 shares authorized | 15,039 | – | – | 3,010 | (a) | 18,049 | ||||||||||||||
| Additional paid-in capital | 67,857,646 | – | – | 4,284,645 | (a) | 72,142,291 | ||||||||||||||
| Treasury stock, at cost | (20,000 | ) | – | – | – | (20,000 | ) | |||||||||||||
| Retained earnings (deficit) | (41,237,559 | ) | 1,704,507 | 457,264 | (3,387,489 | ) | (b)(d)(e) | (42,463,277 | ) | |||||||||||
| Total Vivakor, Inc. stockholders' equity | 26,615,126 | 1,704,507 | 457,264 | 900,166 | 29,677,063 | |||||||||||||||
| Noncontrolling interest | 7,245,917 | – | – | – | 7,245,917 | |||||||||||||||
| Total stockholders' equity | 33,861,043 | 1,704,507 | 457,264 | 900,166 | 36,922,980 | |||||||||||||||
| Total liabilities and stockholders’ equity | $ | 51,699,265 | $ | 9,932,239 | $ | 2,898,478 | $ | 23,970,999 | $ | 88,500,981 | ||||||||||
| 1 |
Notes
(a) To record the acquisition consideration which consisted of 3,009,552 shares of the Company's common stock and the issuance of two promissory notes of an aggregate amount of $28,664,284.
(b) To eliminate the Silver Fuels Delhi, LLC and White Claw Colorado City, LLC capital structures, and record negative net assets as a reduction of the purchase price.
(c) To allocate an estimated 20% of goodwill to intangible assets subject to a full valuation report to be undertaken by the Company within the next year.
(d) To record amortization expense assuming a 10 year life on intangible assets as if the acquisition had occurred on January 1, 2022. The life of the intangibles is an estimate subject to a full valuation report that will be undertaken by the Company within the next year.
(e) To record interest expense on the seller's note payable as if the acquisition had occurred on January 1, 2022. The interest rate of the note is the prime rate plus 3%.
| 2 |
VIVAKOR, INC., SILVER FUELS DELHI, LLC AND WHITE CLAW COLORADO CITY, LLC
Unaudited Proforma Consolidated Statements of Operations
For the Six Months Ended June 30, 2022
| Vivakor, Inc. | Silver Fuels Delhi, LLC | White Claw Colorado City, LLC | Adjustments | Consolidated | ||||||||||||||||
| Revenues | $ | – | $ | 28,817,649 | $ | 750,972 | $ | – | $ | 29,568,621 | ||||||||||
| Cost of revenues | – | 27,246,494 | – | – | 27,246,494 | |||||||||||||||
| Gross profit | – | 1,571,155 | 750,972 | – | 2,322,127 | |||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Sales and marketing | 310,591 | – | – | – | 310,591 | |||||||||||||||
| General and administrative | 4,235,560 | 229,127 | 49,018 | – | 4,513,705 | |||||||||||||||
| Amortization and depreciation | 933,813 | 156,444 | 129,844 | 277,408 | (b) | 1,497,509 | ||||||||||||||
| Total operating expenses | 5,479,964 | 385,571 | 178,862 | 277,408 | 6,321,805 | |||||||||||||||
| Income (loss) from operations | (5,479,964 | ) | 1,185,584 | 572,110 | (277,408 | ) | (3,999,678 | ) | ||||||||||||
| Other income (expense): | ||||||||||||||||||||
| Unrealized loss on marketable securities | (413,189 | ) | – | – | – | (413,189 | ) | |||||||||||||
| Interest income | 12,461 | – | – | – | 12,461 | |||||||||||||||
| Interest expense | (114,946 | ) | (160,643 | ) | (152,264 | ) | (948,310 | )(b) | (1,376,163 | ) | ||||||||||
| Gain on disposition of asset | 2,456 | – | – | – | 2,456 | |||||||||||||||
| Other income | 40,084 | – | – | – | 40,084 | |||||||||||||||
| Total other income (expense) | (473,134 | ) | (160,643 | ) | (152,264 | ) | (948,310 | ) | $ | (1,734,351 | ) | |||||||||
| Income (loss) before provision for income taxes | (5,953,098 | ) | 1,024,941 | 419,846 | (1,225,718 | ) | (5,734,029 | ) | ||||||||||||
| Provision for income taxes | (800 | ) | – | – | – | (800 | ) | |||||||||||||
| Consolidated net income (loss) | (5,953,898 | ) | 1,024,941 | 419,846 | (1,225,718 | ) | (5,734,829 | ) | ||||||||||||
| Less: Net loss attributable to noncontrolling interests | (447,698 | ) | – | – | – | $ | (447,698 | ) | ||||||||||||
| Net income (loss) attributable to Vivakor, Inc. | (5,506,200 | ) | 1,024,941 | $ | 419,846 | $ | (1,225,718 | ) | (5,287,131 | ) | ||||||||||
| Net income (loss) attributable to common shareholders | $ | (5,506,200 | ) | $ | 1,024,941 | $ | 419,846 | $ | (1,225,718 | ) | (5,287,131 | ) | ||||||||
| Basic and diluted net loss per share | $ | (0.38 | ) | (0.32 | ) | |||||||||||||||
| Basic weighted average common shares outstanding | 14,388,004 | 3,009,552 | (a) | 16,739,711 | ||||||||||||||||
Notes
(a) Reflects the issuance of 3,009,552 Vivakor, Inc. shares at acquisition.
(b) To record amortization of intangible expense of $277,408 as well as $948,310 of interest expense associated with the seller's note assumed upon close of the acquisition as if the acquisition had occurred on January 1, 2022.
| 3 |
VIVAKOR, INC., SILVER FUELS DELHI, LLC AND WHITE CLAW COLORADO CITY, LLC
Unaudited Proforma Consolidated Balance Sheets
For the Year Ended December 31, 2021
| ASSETS | Vivakor, Inc. | Silver Fuels Delhi, LLC | White Claw Colorado City, LLC | Adjustments | Consolidated | |||||||||||||||
| Current assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 1,293,767 | $ | 83,261 | $ | 1,350,890 | $ | (1,434,151 | ) | (b) | $ | 1,293,767 | ||||||||
| Cash and cash equivalents attributed to variable interest entity | 199,952 | – | – | – | 199,952 | |||||||||||||||
| Accounts Receivable | 845 | 2,993,706 | 272,435 | (3,266,141 | ) | (b) | 845 | |||||||||||||
| Marketable securities, trading | 2,231,218 | – | – | – | 2,231,218 | |||||||||||||||
| Inventories | 192,000 | 99,902 | – | – | 291,902 | |||||||||||||||
| Precious metal concentrate | 1,166,709 | – | – | – | 1,166,709 | |||||||||||||||
| Other assets | 73,245 | 477,424 | 72,313 | – | 622,982 | |||||||||||||||
| Total current assets | 5,157,736 | 3,654,293 | 1,695,638 | (4,700,292 | ) | 5,807,375 | ||||||||||||||
| Other investments | 4,000 | – | – | – | 4,000 | |||||||||||||||
| Notes receivable | 1,194,235 | – | – | – | 1,194,235 | |||||||||||||||
| Property and equipment, net | 24,692,111 | 2,483,697 | 2,374,851 | – | 29,550,659 | |||||||||||||||
| Rights of use assets- operating leases | 663,291 | – | – | – | 663,291 | |||||||||||||||
| License agreement, net | 2,370,835 | – | – | – | 2,370,835 | |||||||||||||||
| Intellectual property, net | 13,662,037 | – | – | 5,748,606 | (c)(d) | 19,410,643 | ||||||||||||||
| Goodwill | – | – | – | 25,714,919 | (b) | 25,714,919 | ||||||||||||||
| Total assets | $ | 47,744,245 | $ | 6,137,990 | $ | 4,070,489 | $ | 26,763,233 | $ | 84,715,957 | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||
| Accounts payable and accrued expenses | $ | 2,023,985 | $ | 2,336,457 | $ | 92,012 | $ | (2,428,469 | ) | (b) | $ | 2,023,985 | ||||||||
| Operating lease liabilities, current | 287,769 | – | – | – | 287,769 | |||||||||||||||
| Financing lease liabilities, current | – | 232,572 | 175,760 | – | 408,332 | |||||||||||||||
| Loans and notes payable, current | 1,511,447 | – | – | 1,698,362 | (a)(e) | 3,209,809 | ||||||||||||||
| Loans and notes payable, current attributed to variable interest entity | 3,416,379 | – | – | – | 3,416,379 | |||||||||||||||
| Long-term debt, current | 3,256 | – | – | – | 3,256 | |||||||||||||||
| Total current liabilities | 7,242,836 | 2,569,029 | 267,772 | (730,107 | ) | 9,349,530 | ||||||||||||||
| Operating lease liabilities, long term | 434,109 | – | – | – | 434,109 | |||||||||||||||
| Financing lease liabilities, long term | – | 1,696,344 | 2,202,527 | – | 3,898,871 | |||||||||||||||
| Loans and notes payable, long term | 1,185,970 | – | – | 28,757,440 | (a) | 29,943,410 | ||||||||||||||
| Long-term debt | 6,171,298 | – | – | – | 6,171,298 | |||||||||||||||
| Deferred income tax liabilities | 5,156,899 | – | – | – | 5,156,899 | |||||||||||||||
| Total liabilities | 20,191,112 | 4,265,373 | 2,470,299 | 28,027,333 | 54,954,117 | |||||||||||||||
| Stockholders' equity: | ||||||||||||||||||||
| Convertible, preferred stock, $.001 par value; 3,400,000 shares authorized;(1) | ||||||||||||||||||||
| Series A- 66,667 issued and outstanding(1) | 67 | – | – | – | 67 | |||||||||||||||
| Common stock, $.001 par value; 41,666,667 shares authorized(1) | 12,331 | – | – | 3,010 | (a) | 15,341 | ||||||||||||||
| Additional paid-in capital | 58,279,590 | – | – | 4,284,645 | (a) | 62,564,235 | ||||||||||||||
| Treasury stock, at cost | (20,000 | ) | – | – | – | (20,000 | ) | |||||||||||||
| Retained earnings (deficit) | (35,731,359 | ) | 1,872,617 | 1,600,190 | (5,839,186 | ) | (b)(d)(e) | (38,097,738 | ) | |||||||||||
| Total Vivakor, Inc. stockholders' equity | 22,540,629 | 1,872,617 | 1,600,190 | (1,551,531 | ) | 24,461,905 | ||||||||||||||
| Noncontrolling interest | 5,012,504 | – | – | – | 5,012,504 | |||||||||||||||
| Total stockholders' equity | 27,553,133 | 1,872,617 | 1,600,190 | (1,551,531 | ) | 29,474,409 | ||||||||||||||
| Total liabilities and stockholders’ equity | $ | 47,744,245 | $ | 6,137,990 | $ | 4,070,489 | $ | 26,475,802 | $ | 84,428,526 | ||||||||||
| 4 |
Notes
(1) Share and per share amounts have been retroactively adjusted to reflect the one-for-thirty reverse stock split effective February 14, 2022.
(a) To record the acquisition consideration which consisted of 3,009,552 shares of the Company's common stock and the issuance of two promissory notes of an aggregate amount of $28,664,284.
(b) To eliminate the Silver Fuels Delhi, LLC and White Claw Colorado City, LLC capital structures, and record negative net assets as a reduction of the purchase price.
(c) To allocate an estimated 20% of goodwill to intangible assets subject to a full valuation report to be undertaken by the Company within the next year.
(d) To record amortization expense assuming a 10 year life on intangible assets as if the acquisition had occurred on January 1, 2021. The life of the intangibles is an estimate subject to a full valuation report that will be undertaken by the Company within the next year.
(e) To record interest expense on the seller's note payable as if the acquisition had occurred on January 1, 2021. The interest rate of the note is the prime rate plus 3%.
| 5 |
VIVAKOR, INC., SILVER FUELS DELHI, LLC AND WHITE CLAW COLORADO CITY, LLC
Unaudited Proforma Consolidated Statements of Operations
For the Year Ended December 31, 2021
| Vivakor, Inc. | Silver Fuels Delhi, LLC | White Claw Colorado City, LLC | Adjustments | Consolidated | ||||||||||||||||
| Revenues | $ | 1,088,428 | $ | 33,000,380 | $ | 272,435 | $ | – | $ | 34,361,243 | ||||||||||
| Cost of revenues | 1,050,676 | 30,598,276 | – | – | 31,648,952 | |||||||||||||||
| Gross profit | 37,752 | 2,402,104 | 272,435 | – | 2,712,291 | |||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Sales and marketing | 849,107 | – | – | – | 849,107 | |||||||||||||||
| General and administrative | 4,652,069 | 419,392 | 92,795 | – | 5,164,256 | |||||||||||||||
| Amortization and depreciation | 1,462,492 | 297,323 | 166,667 | 574,861 | (b) | 2,501,343 | ||||||||||||||
| Total operating expenses | 6,963,668 | 716,715 | 259,462 | 574,861 | 8,514,706 | |||||||||||||||
| Income (loss) from operations | (6,925,916 | ) | 1,685,389 | 12,973 | (574,861 | ) | (5,802,415 | ) | ||||||||||||
| Other income: | ||||||||||||||||||||
| Gain on disposition of asset | 87,044 | – | – | – | 87,044 | |||||||||||||||
| Unrealized loss on marketable securities | (1,094,054 | ) | – | – | – | (1,094,054 | ) | |||||||||||||
| Interest income | 3,312 | – | – | – | 3,312 | |||||||||||||||
| Interest expense | (501,598 | ) | (324,336 | ) | – | (1,791,518 | )(b) | (2,617,452 | ) | |||||||||||
| Other income | 125,299 | 934 | – | – | 126,233 | |||||||||||||||
| Total other income (expense) | (1,379,997 | ) | (323,402 | ) | – | (1,791,518 | ) | $ | (3,494,917 | ) | ||||||||||
| Income (loss) before provision for income taxes | (8,305,913 | ) | 1,361,987 | 12,973 | (2,366,379 | ) | (9,297,332 | ) | ||||||||||||
| Benefit (provision) for income taxes | 1,050,207 | – | – | – | 1,050,207 | |||||||||||||||
| Consolidated net income (loss) | (7,255,706 | ) | 1,361,987 | 12,973 | (2,366,379 | ) | (8,247,125 | ) | ||||||||||||
| Less: Net loss attributable to noncontrolling interests | (1,771,535 | ) | – | – | – | $ | (1,771,535 | ) | ||||||||||||
| Net income (loss) attributable to company | $ | (5,484,171 | ) | $ | 1,361,987 | $ | 12,973 | $ | (2,366,379 | ) | (6,475,590 | ) | ||||||||
| Net income (loss) attributable to common shareholders | $ | (5,484,171 | ) | $ | 1,361,987 | $ | 12,973 | $ | (2,366,379 | ) | (6,475,590 | ) | ||||||||
| Dividend on preferred stock | 42,196 | – | – | – | 42,196 | |||||||||||||||
| $ | (5,526,367 | ) | $ | 1,361,987 | $ | 12,973 | $ | (2,366,379 | ) | (6,517,786 | ) | |||||||||
| Basic and diluted net income (loss) per share (1) | $ | (0.46 | ) | (0.43 | ) | |||||||||||||||
| Basic weighted average common shares outstanding (1) | 11,976,116 | 3,009,552 | (a) | 14,985,668 | ||||||||||||||||
Notes
(1) Share and per share amounts have been retroactively adjusted to reflect the one-for-thirty reverse stock split effective February 14, 2022.
(a) Reflects the issuance of 3,009,552 Vivakor, Inc. shares at acquisition.
(b) To record amortization of intangible expense of $287,430 as well as $895,759 of interest expense associated with the seller's note assumed upon close of the acquisition as if the acquisition had occurred on January 1, 2021.
| 6 |